OPEN UNIVERSITY OF HCMC
SCHOOL OF ADVANCED STUDY
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Factors Affecting The Exchange
Rate
Class: DH22CF03C
Group:
1. Nguyễn Ngọc Nhiên
2. Phan Thị Thanh Như
3. Lê Trần Ngọc Lực
4. Nguyễn Hồng Ngọc
5. Trương Gia Khiêm
6. Dương Minh Nguyệt
7. Nguyễn Phúc An
Lecturer: Phạm Hà
THE EVALUATION TABLE FOR TEAM MEMBER
Number Name Student code Implementation content Personal
evaluation
1 Nguyễn Ngọc Nhiên 2254032188 - Manage work for team members. 100%
- Find and analyze five factors
affecting the exchange rate.
2 Nguyễn Phúc An 2151013001 - Find and analyze five factors 100%
affecting the exchange rate.
3 Nguyễn Hồng Ngọc 2254032155 - Find and analyze five factors 100%
affecting the exchange rate.
4 Lê Trần Ngọc Lực 2254032111 - Write an introduction and a 100%
conclusion.
- Create the evaluation table and assign
work to team members
5 Trương Gia Khiêm 2254032191 - Find and analyze five factors 100%
affecting the exchange rate.
6 Dương Minh Nguyệt 2254032170 - Find and analyze five factors 100%
affecting the exchange rate.
7 Phan Thị Thanh Như 2254032192 - Find and analyze five factors 100%
affecting the exchange rate.
Factors Affecting The Exchange Rate
An exchange rate is the value at which one currency can be exchanged for
another. It determines how much of one currency is needed to purchase a unit
of another currency, impacting international transactions and trade. The
exchange rate has a significant role in global finance and economics. However,
it can be affected by various factors.
The literature lacks a unified agreement on the determinants of exchange rate
movements and their volatility. These determinants are generally classified into
two categories: economic factors and non-economic factor.
1. Economic factors
a) Short-term
- Economic growth: Economic growth impacts exchange rates by influencing
currency supply and demand. Higher economic growth typically increases
disposable income, boosting imports and thus raising the supply of domestic
currency, which can lead to depreciation. Additionally, GDP growth signals
economic stability, attracting foreign investment, which may appreciate the
currency in the short- term.
- Inflation : If the rate of inflation in domestic country is higher than foreign
country, the domestic good is expensive. It will increase in demand for foreign
currency to buy good and decrease domestic currency demand. Therefore,
foreign currency appreciates against domestic currency.
- Interest rate: It influences exchange rates by affecting capital flows. Higher
interest rates attract foreign investment, increasing demand for the currency and
leading to appreciation, though short-term deviations may occur due to external
factors and market sentiment.
- Balance of payment: It affects exchange rates by reflecting the net flows of
trade and capital. A surplus typically leads to currency appreciation due to
increased demand, while a deficit exerts depreciation pressure by increasing
supply.
b) Long-term
- The level of FX market development and speculative capital flows: They
impact exchange rates by influencing market liquidity and sensitivity.
Underdeveloped markets are more volatile, amplifying responses to speculation
and global capital movements, thus heightening exchange rate fluctuations.
Over time, mature markets reduce volatility, making this a long-term structural
factor.
2. Non-economic factor.
- Government policy: Through central bank interventions particularly, it affects
exchange rates by influencing currency supply and demand. Actions like
monetary policy adjustments, interest rates, and foreign currency transactions
shape market expectations and capital flows, thereby impacting exchange rate.
In conclusion, exchange rates hold significant importance in global trade and
finance, serving as a key determinant of currency values. They play an essential
role in shaping international transactions, directly influencing the stability of
economies, the operations of businesses, and the financial well-being of
individuals worldwide.
References
Bilski, J., & Janicka, M. (2009). Uwarunkowania wprowadzenia złotego do
ERM II. Ekonomista, (1), 91-109.
Bùi Kim Yến, Nguyễn Minh Kiều, 2011,Thị Trường Tài Chính, Nhà xuất bản
lao động xã hội.
Chisholm, A. M. (2013). Wprowadzenie do międzynarodowych rynków
finansowych. Wydawnictwo Wolters Kluwer, Warszawa.
Twarowska, K., & Kakol, M. (2014, June). Analysis of factors affecting
fluctuations in the exchange rate of polish zloty against euro. In Human Capital
without Borders: Knowledge and Learning for Quality of Life; Proceedings of
the Management, Knowledge and Learning International Conference 2014 (pp.
889-896). ToKnowPress.
Van Wijnbergen, S. (1987). Fiscal deficits, exchange rate crises and inflation.
